Seton Hall University Wins the NYSSA (New York Society of Security Analysts) Investment Research Challenge Once Again. Please join me in congratulating the team of students from the Stillman School of Business at Seton Hall University (SHU) - where I am on the faculty in the Department of Finance – that was victorious in the 2007 NYSSA (New York Society of Security Analysts) Investment Research Challenge. SHU has now won this prestigious competition two years in a row. The team of Andrey Botev, Megan Joseph, Theresa Ko, Bill Moore, and Angelo Stracquatanio was led by faculty advisor Dr. Andrew Yi. I have had the pleasure of teaching both Angelo and Andrey at in my classes at SHU. The SHU team recommended that investors sell shares of Tasty Baking Company (TSTY). I had the opportunity to advise the team and observe their presentation which was of professional quality. Next up for the team will be the ringing of the NASDAQ opening bell on Monday, April 23 and competing against Babson College, Chinese University of Hong Kong, and Rice University at the first ever CFA Institute Global Investment Research Challenge next Thursday, April 26th.
The best kept secret in the NYC metro area is the quality of the students and program at
. If you are looking for a great full time employee or intern please let me know and I can set you up with one of our students.
Saturday, June 9, 2007
Restaurant Stocks Will Get Busy in This Week!
This week we get a slew of earnings from the casual dining sector with stocks such as Brinker International (EAT), Cheesecake Factory (CAKE), IHOP (IHP), Panera Bread (PNRA), Wendy’s (WEN), Burger King (BK), PF Chang’s Bistro (PFCB), Rare Hospitality (RARE), Famous Dave’s (DAVE), BJ’s Restaurants (BJRI) and Burger King (BK) all set to report. There are certain to be winners and losers amongst them. However, there are some themes worth noting before the multi-course earnings meals are delivered:
1. The casual dining segment has been hurt by the weather and declining traffic as evidenced by low positive or negative same store comp sales.
2. The substitution effect is kicking into high gear again as energy prices push diners down from the casual dining segment into the quick casual segment. McDonald’s (MCD) which reported last week and WEN and BK which report this week should benefit.
3. Chicken prices rose last quarter while beef prices were flat to slightly up or down depending on how purchasing and hedging strategies were executed by the chains. The creeping effect of increasing state minimum wages are beginning to take hold in the casual dining restaurant chains which derive all or most of their earnings in the
.
4. As with specialty retail, the high end specialty restaurants continue to grow and attract diners despite menu price increases which are being passed on to diners.
So what do you do? It’s time to get back to a barbell approach to investing in this sector. The strategy is to own a quick service and high end restaurant in the portfolio. My picks are MCD and Ruth’s Chris Steakhouse (RUTH). The only exceptions in the middle would be casual dining outliers like Benihana (BNHN) which are exhibiting strong traffic, comps and growth. BNHN might be worth a look on a dip if the stock sells off in sympathy with the rest of the sector.
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of MCD, and RUTH --- although positions can change at any time.
1. The casual dining segment has been hurt by the weather and declining traffic as evidenced by low positive or negative same store comp sales.
2. The substitution effect is kicking into high gear again as energy prices push diners down from the casual dining segment into the quick casual segment. McDonald’s (MCD) which reported last week and WEN and BK which report this week should benefit.
3. Chicken prices rose last quarter while beef prices were flat to slightly up or down depending on how purchasing and hedging strategies were executed by the chains. The creeping effect of increasing state minimum wages are beginning to take hold in the casual dining restaurant chains which derive all or most of their earnings in the
.
4. As with specialty retail, the high end specialty restaurants continue to grow and attract diners despite menu price increases which are being passed on to diners.
So what do you do? It’s time to get back to a barbell approach to investing in this sector. The strategy is to own a quick service and high end restaurant in the portfolio. My picks are MCD and Ruth’s Chris Steakhouse (RUTH). The only exceptions in the middle would be casual dining outliers like Benihana (BNHN) which are exhibiting strong traffic, comps and growth. BNHN might be worth a look on a dip if the stock sells off in sympathy with the rest of the sector.
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of MCD, and RUTH --- although positions can change at any time.
First Israel Fund Reach New Highs!
First Israel Fund (ISL) opened up over 4% and quickly rose to a 7% gain today in early trading on extremely high volume for that closed-ended fund. ISL now stands at a new all-time high. I first started buying ISL just over 4 years ago not only for its discount to NAV but because of the exposure that it gave me to the tech and bio-tech rich Israeli market and well as to companies which are not readily and publicly available to a US based investor. The stock traded at a 8% discount to NAV on Friday. I have not seen or heard any news for ISL today to explain the sudden price movement. The surge in ISL might indicate that some action may be taken by the ISL fund sponsors to close the discount through some rights offering or conversion. Even if that were to occur I would still hold onto my ISL as it still provides with that Israeli capital markets exposure.
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of ISL --- although positions can change at any time.
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of ISL --- although positions can change at any time.
News Corp Acquisition of Dow Jones Is a Genius Move on The Part of Rupert Murdoch!!!!!
News Corp (NWS) has made a $60 unsolicited bid for Dow Jones & Co. (DJ). I believe that this is a genius move on the part of Rupert Murdoch. Here’s why:
* DJ owns the Dow Jones indexes of which the Dow Jones Industrials 30 stock index is the most recognized index in the world. It may not be the most tracked index or the benchmark of choice for performance measurement but it does carry a significant amount of brand recognition.
* DJ has failed to exploit its indexes. On the other hand, McGraw Hill (MHP) has successfully marketed its Standard & Poor’s brand of indexes of which the S&P 500 (SPX/SPY) is the most widely known index and index of choice for stock advisor performance benchmarking. NWS will certainly expand the Dow Jones brand of indexes doing for Dow Jones what MHP has done for S&P.
* NWS is busy preparing to launch its own cable business channel. With the Dow Jones indexes, NWS will have a crown jewel index to help integrate and cross-promote its many media holdings including the yet to be launched business channel.
While the NWS bid for DJ is high, nevertheless this will cause some consternation by General Electric (GE) owner of CNBC and Time Warner (TWX). TWX is in no position to make a large scale acquisition just yet. Thus with only the Dow Jones and Standard & Poor’s brands of indexes available to media conglomerates this leaves GE to make a higher big for DJ or set its sights on MHP to parry Murdoch’s move
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of SPY --- although positions can change at any time.
* DJ owns the Dow Jones indexes of which the Dow Jones Industrials 30 stock index is the most recognized index in the world. It may not be the most tracked index or the benchmark of choice for performance measurement but it does carry a significant amount of brand recognition.
* DJ has failed to exploit its indexes. On the other hand, McGraw Hill (MHP) has successfully marketed its Standard & Poor’s brand of indexes of which the S&P 500 (SPX/SPY) is the most widely known index and index of choice for stock advisor performance benchmarking. NWS will certainly expand the Dow Jones brand of indexes doing for Dow Jones what MHP has done for S&P.
* NWS is busy preparing to launch its own cable business channel. With the Dow Jones indexes, NWS will have a crown jewel index to help integrate and cross-promote its many media holdings including the yet to be launched business channel.
While the NWS bid for DJ is high, nevertheless this will cause some consternation by General Electric (GE) owner of CNBC and Time Warner (TWX). TWX is in no position to make a large scale acquisition just yet. Thus with only the Dow Jones and Standard & Poor’s brands of indexes available to media conglomerates this leaves GE to make a higher big for DJ or set its sights on MHP to parry Murdoch’s move
At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of SPY --- although positions can change at any time.
Wednesday, June 6, 2007
Oil Prices and Gasoline Prices: An Interesting Divergence
Jeff Miller
Those trading energy stocks must always follow crude oil prices. This is especially important for investors in Transocean, Inc. (RIG) and Global SantaFe (GSF), both stocks that we hold in trading and individual portfolios.
Even though the front-month spot price has a lot of variation, the energy ETF's seem to follow the front month. This makes no sense for stocks that are "upstream" like RIG and GSF, but it fits the pattern.
We have observed that futures trading sometimes seems irrational. The common scenario is that there is some problem with refinery capacity. When these stories have hit in the past, often due to weather, crude oil futures have spiked.
Economic analysis suggests that the opposite should occur. If refineries have reduced capacity, the demand for crude is reduced. That demand curve should shift, leading to lower crude prices.
The countervailing force is trade in the "crack spread." Traders study and trade the relationship between the price of a barrel of oil and the price of refined products, using ratios that vary according to the season. When the crack spread reaches an extreme, there is a mean-reverting trade. This causes buys in crude.
Today we saw an interesting divergence, noted in the Wall Street Journal. Crude prices fell in the face of reduced refinery capacity. This is new!
At "A Dash" we continue to believe that investors in energy stocks can use these moves to adjust positions. If the investor is focused on the long-term demand for future drilling, any dip provides an opportunity.
Summary
Equity investors do not study the futures markets and the forces behind that trading. Those that do can gain a significant advantage in their stock trading.
Those trading energy stocks must always follow crude oil prices. This is especially important for investors in Transocean, Inc. (RIG) and Global SantaFe (GSF), both stocks that we hold in trading and individual portfolios.
Even though the front-month spot price has a lot of variation, the energy ETF's seem to follow the front month. This makes no sense for stocks that are "upstream" like RIG and GSF, but it fits the pattern.
We have observed that futures trading sometimes seems irrational. The common scenario is that there is some problem with refinery capacity. When these stories have hit in the past, often due to weather, crude oil futures have spiked.
Economic analysis suggests that the opposite should occur. If refineries have reduced capacity, the demand for crude is reduced. That demand curve should shift, leading to lower crude prices.
The countervailing force is trade in the "crack spread." Traders study and trade the relationship between the price of a barrel of oil and the price of refined products, using ratios that vary according to the season. When the crack spread reaches an extreme, there is a mean-reverting trade. This causes buys in crude.
Today we saw an interesting divergence, noted in the Wall Street Journal. Crude prices fell in the face of reduced refinery capacity. This is new!
At "A Dash" we continue to believe that investors in energy stocks can use these moves to adjust positions. If the investor is focused on the long-term demand for future drilling, any dip provides an opportunity.
Summary
Equity investors do not study the futures markets and the forces behind that trading. Those that do can gain a significant advantage in their stock trading.
Market Higher in 2007 Series: Handling Adversity
Jeff Miller
How should one react when expecting a big move, but the market moves against you?
Having laid out our basic thesis, the potential for major gains in U.S. equities, we are immediately faced by selling that is described as "ugly" by most traders. What this really means depends upon one's time frame.
A Good Example
CNBC today featured an interview with a technical analyst who does good work. Let us recap his comments, with the S&P 500 daily chart in front of us.Sp_500_daily_may_10_2007
The analyst was asked whether it was a good time to "buy the dip." The market was down about 1% at the time. His response was as follows:
* It was good to take money off of the table from the run-up. (It was not clear whether that was to be done at the moment of the statement, a week earlier, gradually, or on yesterday's close. * There would be continued selling. * The basic trend was upward, so one should be getting long in the 1450-1475 range.
Let us suppose that an active fund manager or trader had followed this advice. Since there was no specific guidance and days or amounts, we shall assume that he sold 20% of his position at about 1500 give or take a few points. (This was a popular technical point, 1503 in the SPU's and a bit less in the cash.)
Let us further suppose that the fund manager sold another 20% with the market down 1% today.
What is the plan? Is he to buy some at 1475 and the rest at 1450, assuming that point is reached?Even if everything is executed to perfection, the trader makes about 0.4% on one leg (20% times 2%) and 0.8% on the other leg (20% times 4%).
Most traders are neither so agile nor so accurate. Meanwhile, what if the full dip does not occur? Most traders have trouble "chasing" when the predicted dip does not happen. The risk is that they are under-invested during a major run.
It is tricky to time the market for a small gain.
Longer Time Frames
Investors should look at the longer time frame, better represented by a weekly chart. On this basis the selling seems like a minor setback.
Sp_500_weekly_may_10_2007
Our modeling guru is Vince Castelli, a consultant who completed a distinguished career as a Navy scientist. He has a method for trend-following situations. It may lose something at turning points, but catches all of the big moves. The time frame is relatively short, measured in days. Vince's models remain bullish on all market indices. He uses indicators similar to others, but measured in ways we regard as superior.
Our Take: We remain long even in our short-term trading accounts. Please note that the trading position is model driven. The charts are just for illustration.
For another technical view and better charts, we always read Trader Mike, who today sees a bit of technical damage. Worden also went to a downtrend on the shortest of their four time frames.
Psychology
Today's psychology illustrated exactly what we had predicted. There are many active traders and hedge fund managers who want to be the first to anticipate a poor economy. The highly negative sentiment has many poised to jump at any sign of economic weakness.
Fundamentals
Fundamental analysis should be the watchword for long-term investors. That means looking at forward earnings projections compared to risk-adjusted returns from other asset classes. As long as stocks are so cheap compared to bonds, the buy signal is in place.
Those who believe they are wiser than economic forecasters seize upon any piece of evidence to support that viewpoint. At "A Dash" we are consumers of forecasts, including the following:
* The ECRI, repeatedly stating that leading indicators show strength in the economy. * David Malpass, who continues to see economic strength, with risk coming from eventual inflation. * Consensus economic forecasts, showing solid growth in the rest of the year.
At "A Dash" our emphasis is on education -- picking the best sources, choosing the right indicators, and interpreting data. We do not offer trading advice. So many who blog about trading do that better. We do wish to help long-term investors get on the right side of major moves.
We remain quite happy with what our friend at Abnormal Returns calls a contrarian position. This is good.
How should one react when expecting a big move, but the market moves against you?
Having laid out our basic thesis, the potential for major gains in U.S. equities, we are immediately faced by selling that is described as "ugly" by most traders. What this really means depends upon one's time frame.
A Good Example
CNBC today featured an interview with a technical analyst who does good work. Let us recap his comments, with the S&P 500 daily chart in front of us.Sp_500_daily_may_10_2007
The analyst was asked whether it was a good time to "buy the dip." The market was down about 1% at the time. His response was as follows:
* It was good to take money off of the table from the run-up. (It was not clear whether that was to be done at the moment of the statement, a week earlier, gradually, or on yesterday's close. * There would be continued selling. * The basic trend was upward, so one should be getting long in the 1450-1475 range.
Let us suppose that an active fund manager or trader had followed this advice. Since there was no specific guidance and days or amounts, we shall assume that he sold 20% of his position at about 1500 give or take a few points. (This was a popular technical point, 1503 in the SPU's and a bit less in the cash.)
Let us further suppose that the fund manager sold another 20% with the market down 1% today.
What is the plan? Is he to buy some at 1475 and the rest at 1450, assuming that point is reached?Even if everything is executed to perfection, the trader makes about 0.4% on one leg (20% times 2%) and 0.8% on the other leg (20% times 4%).
Most traders are neither so agile nor so accurate. Meanwhile, what if the full dip does not occur? Most traders have trouble "chasing" when the predicted dip does not happen. The risk is that they are under-invested during a major run.
It is tricky to time the market for a small gain.
Longer Time Frames
Investors should look at the longer time frame, better represented by a weekly chart. On this basis the selling seems like a minor setback.
Sp_500_weekly_may_10_2007
Our modeling guru is Vince Castelli, a consultant who completed a distinguished career as a Navy scientist. He has a method for trend-following situations. It may lose something at turning points, but catches all of the big moves. The time frame is relatively short, measured in days. Vince's models remain bullish on all market indices. He uses indicators similar to others, but measured in ways we regard as superior.
Our Take: We remain long even in our short-term trading accounts. Please note that the trading position is model driven. The charts are just for illustration.
For another technical view and better charts, we always read Trader Mike, who today sees a bit of technical damage. Worden also went to a downtrend on the shortest of their four time frames.
Psychology
Today's psychology illustrated exactly what we had predicted. There are many active traders and hedge fund managers who want to be the first to anticipate a poor economy. The highly negative sentiment has many poised to jump at any sign of economic weakness.
Fundamentals
Fundamental analysis should be the watchword for long-term investors. That means looking at forward earnings projections compared to risk-adjusted returns from other asset classes. As long as stocks are so cheap compared to bonds, the buy signal is in place.
Those who believe they are wiser than economic forecasters seize upon any piece of evidence to support that viewpoint. At "A Dash" we are consumers of forecasts, including the following:
* The ECRI, repeatedly stating that leading indicators show strength in the economy. * David Malpass, who continues to see economic strength, with risk coming from eventual inflation. * Consensus economic forecasts, showing solid growth in the rest of the year.
At "A Dash" our emphasis is on education -- picking the best sources, choosing the right indicators, and interpreting data. We do not offer trading advice. So many who blog about trading do that better. We do wish to help long-term investors get on the right side of major moves.
We remain quite happy with what our friend at Abnormal Returns calls a contrarian position. This is good.
Why US Stocks Can Move Much Higher - Part One, Overview
Jeff Miller
It is our conclusion that stocks can move much higher during 2007. This is no surprise to regular readers of "A Dash", but it is a good time to summarize the current situation. We will do this in a multi-part series examining several issues.
This installment considers an overview of basic considerations.
Psychology and Sentiment
Over the last few weeks we have noted a changed attitude among many active traders and fund managers who state public positions. We started to note these, planning to cite links, but decided against it. It is so pervasive that it seems unnecessary. Everyone is "taking something off the table" and trying to lock in gains, nervous about the seemingly relentless advance.
The TickerSense blogger sentiment poll captures this quite well, with over 40% bears and 25% neutral. It seems unusual for bearishness to be rising with the market.
One reason is that the bullish forecasters are seeing the market approach their original expectations for the year. Revisions to forecasts are modest. Abby Joseph Cohen is going to 1600 on the S&P for 2007. That puts her on the bullish extreme, but it is only about 6%. Ed Keon, whom we have cited in the past for his excellent analysis of market factors, remains the biggest bull with his forecast going to 1650.
Meanwhile, there are plenty of forecasts of a major blow for stocks. Traders are reacting to perceived risk and reward. That is how psychology works.
There is a lot of rhetoric about a "melt-up" or "ignoring the fundamentals." Since we believe in analysis rather than rhetoric, it is necessary to look at technical and fundamental considerations.
Technical Indicators
Before accepting the "melt-up" talk, it is useful to look at a chart. We recommend today's excellent analysis by TraderMike. We see in his charts some strong trending markets, but nothing parabolic. Many active traders follow Worden, where today's indicators show uptrends in every time frame they follow (subscription required).
Some technicians report "overbought" conditions. It would take a very small pull back to relieve these overbought readings. Moreover, overbought trending markets can move higher -- much higher.
Most importantly, our own technical models, devised by Vince Castelli, caught the end of last year and the current move. They remain bullish on all of the major indices, a position that (unlike many others) we have reported contemporaneously on TickerSense.
Fundamentals
Some assert that the market has gotten ahead of fundamentals, since stocks have advanced more than recent earnings growth. These analysts are focused on what we call "local efficiency." They are assuming that last year's pricing was an accurate valuation.
In fact, stocks have lagged during a multi-year period where profits grew at double-digit rates.
There is a lot of catching up to do.
Our own preview of 2007 informed investors that market valuations were low when one took the current low interest rates into consideration. Those who ignore interest rates in their analysis of fundamentals are adopting a method that we find distinctly inferior.
We have explained why this is true. Articles in this series will show how it is playing out before our eyes.
Summary
There are also plenty of miscellaneous arguments lacking evidence. Our favorite radio commentators on Car Talk have a term for such claims concerning car repairs. They call them "BOGUSSSSS". We will try to identify and discuss several instances including the following:
* "Peak" earnings * Ignoring interest rates * The market record of umpteen up days and the need for balance * Stock buybacks as "inferior" earnings * Poor recession forecasting * Earnings mean reversion
Our work is laid out and our position is clear. Obviously, the stock market can decline at any time for many different reasons. Our technical models can change our trading positions, and we shall report if that happens.
These would be short-term factors. Our fundamental conclusion is that stocks have plenty of room to run. We remain leveraged up in trading accounts and close to full investment in individual accounts.
It is our conclusion that stocks can move much higher during 2007. This is no surprise to regular readers of "A Dash", but it is a good time to summarize the current situation. We will do this in a multi-part series examining several issues.
This installment considers an overview of basic considerations.
Psychology and Sentiment
Over the last few weeks we have noted a changed attitude among many active traders and fund managers who state public positions. We started to note these, planning to cite links, but decided against it. It is so pervasive that it seems unnecessary. Everyone is "taking something off the table" and trying to lock in gains, nervous about the seemingly relentless advance.
The TickerSense blogger sentiment poll captures this quite well, with over 40% bears and 25% neutral. It seems unusual for bearishness to be rising with the market.
One reason is that the bullish forecasters are seeing the market approach their original expectations for the year. Revisions to forecasts are modest. Abby Joseph Cohen is going to 1600 on the S&P for 2007. That puts her on the bullish extreme, but it is only about 6%. Ed Keon, whom we have cited in the past for his excellent analysis of market factors, remains the biggest bull with his forecast going to 1650.
Meanwhile, there are plenty of forecasts of a major blow for stocks. Traders are reacting to perceived risk and reward. That is how psychology works.
There is a lot of rhetoric about a "melt-up" or "ignoring the fundamentals." Since we believe in analysis rather than rhetoric, it is necessary to look at technical and fundamental considerations.
Technical Indicators
Before accepting the "melt-up" talk, it is useful to look at a chart. We recommend today's excellent analysis by TraderMike. We see in his charts some strong trending markets, but nothing parabolic. Many active traders follow Worden, where today's indicators show uptrends in every time frame they follow (subscription required).
Some technicians report "overbought" conditions. It would take a very small pull back to relieve these overbought readings. Moreover, overbought trending markets can move higher -- much higher.
Most importantly, our own technical models, devised by Vince Castelli, caught the end of last year and the current move. They remain bullish on all of the major indices, a position that (unlike many others) we have reported contemporaneously on TickerSense.
Fundamentals
Some assert that the market has gotten ahead of fundamentals, since stocks have advanced more than recent earnings growth. These analysts are focused on what we call "local efficiency." They are assuming that last year's pricing was an accurate valuation.
In fact, stocks have lagged during a multi-year period where profits grew at double-digit rates.
There is a lot of catching up to do.
Our own preview of 2007 informed investors that market valuations were low when one took the current low interest rates into consideration. Those who ignore interest rates in their analysis of fundamentals are adopting a method that we find distinctly inferior.
We have explained why this is true. Articles in this series will show how it is playing out before our eyes.
Summary
There are also plenty of miscellaneous arguments lacking evidence. Our favorite radio commentators on Car Talk have a term for such claims concerning car repairs. They call them "BOGUSSSSS". We will try to identify and discuss several instances including the following:
* "Peak" earnings * Ignoring interest rates * The market record of umpteen up days and the need for balance * Stock buybacks as "inferior" earnings * Poor recession forecasting * Earnings mean reversion
Our work is laid out and our position is clear. Obviously, the stock market can decline at any time for many different reasons. Our technical models can change our trading positions, and we shall report if that happens.
These would be short-term factors. Our fundamental conclusion is that stocks have plenty of room to run. We remain leveraged up in trading accounts and close to full investment in individual accounts.
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